what is an endowment fund

An endowment fund is a legal structure for managing and perpetuating a pool of financial, real estate, or other investments for a specific purpose according to the will of its founders and donors. It is a fund that is invested to provide long-term support for a particular nonprofit organization or cause in perpetuity. The beneficiary of an endowment fund is a nonprofit organization instead of individual investors. The principal value of the endowment fund is kept intact, while the investment earnings can be distributable dollars used for charitable grants to nonprofits. Endowment funds are typically organized as a trust, private foundation, or public charity. They consist of cash, equities, bonds, and other types of securities that can generate investment income. The total amount of the gift is invested, and each year, only a portion of the income earned is spent while the remainder is added to the principal for growth. Endowments are often governed and managed either as a nonprofit corporation, a charitable foundation, or a private foundation. Donations to endowment funds are tax-deductible, and donors can donate both cash and non-cash assets such as stock, mutual funds, or real estate to fund the endowment.